Sun Healthcare Group, Inc. Reports 2012 Third-Quarter Operating

Sun Healthcare Group, Inc. Reports 2012 Third-Quarter Operating
Results; Normalized EPS from Continuing Operations of $0.17 
IRVINE, CA -- (Marketwire) -- 10/29/12 --  Sun Healthcare Group, Inc.
(NASDAQ: SUNH) today announced its operating results for the third
quarter ended Sept. 30, 2012. 
Highlights of continuing operations: 


 
--  consolidated revenues were $460.5 million for the quarter;
--  consolidated normalized adjusted EBITDAR was $57.9 million for the
    quarter representing a normalized adjusted EBITDAR margin of 12.6
    percent; and
--  normalized earnings per share was $0.17 for the quarter.

  
Transaction Update
 The closing date for the Company's pending
transaction with Genesis HealthCare LLC has not yet been finalized
but is expected to occur in December 2012, subject to receipt of a
few remaining regulatory approvals and the satisfaction of customary
closing conditions. In connection with the pending transaction, the
Company incurred $2.9 million of transaction costs through the nine
months ended Sept. 30, 2012, which were primarily comprised of legal
fees and financial advisory fees. The Company will not hold a
quarterly conference call to discuss its third-quarter results. 
Commenting on the expected completion of the transaction, William A.
Mathies, Sun's chairman and chief executive officer, stated, "I am
extremely proud of our thousands of caregivers and employees, who
have maintained their focus on providing high-quality care for our
patients and residents throughout the transaction process while
continuing to execute toward our operational goals for this year. As
we enter into our merger with Genesis HealthCare, I'm confident that
we bring skills, dedication, and capabilities that will contribute to
the success of the combined company." 
Segment Updates
 Sun's inpatient services business produced revenue
in the third quarter totaling $409.8 million, down $8.3 million, or
2.0 percent, from the third quarter of 2011. The decrease in
year-over-year revenues resulted principally from the reduction in
Medicare rates as mandated by the CMS Final Rule and implemented in
the prior year on Oct. 1, 2011. Inpatient services adjusted EBITDAR
for the quarter was $66.3 million, down $8.4 million, or 11.2
percent, from th
e prior year third quarter, and adjusted EBITDAR
margin for the quarter was 16.2 percent, down 170 basis points from
the prior year third quarter. 
Sun's hospice division, SolAmor, is included in Sun's inpatient
services business segment and produced revenue in the third quarter
of $15.7 million, up $0.8 million, or 5.6 percent, from the third
quarter of 2011. SolAmor's adjusted EBITDAR was $3.9 million in the
third quarter and adjusted EBITDAR margin was 24.6 percent.  
Sun's rehabilitation therapy services business, SunDance, reported
third-quarter revenues of $60.9 million, adjusted EBITDAR of $4.5
million and an adjusted EBITDAR margin of 7.4 percent, up 310 basis
points year over year. 
Sun's medical staffing services business, CareerStaff, reported
third-quarter revenues of $22.1 million, up 1.7 percent year over
year, adjusted EBITDAR of $1.6 million and an adjusted EBITDAR margin
of 7.2 percent.  
Cash Flow
 At Sept. 30, 2012, Sun had $63.8 million in cash and cash
equivalents and $88.9 million of long-term debt. During the third
quarter, Sun generated cash flow from operations of $26.4 million and
used net cash of $5.9 million for capital investments.  
About Sun Healthcare Group, Inc.
 Sun Healthcare Group, Inc. (NASDAQ:
SUNH) is a healthcare services company, serving principally the
senior population, with consolidated annual revenues in excess of
$1.9 billion and approximately 28,000 employees in 46 states. Sun's
services are provided through its subsidiaries: as of Sept. 30, 2012,
SunBridge Healthcare and its subsidiaries' continuing operations
include 158 skilled nursing centers, 13 combined skilled nursing,
assisted and independent living centers, 10 assisted living centers,
two independent living centers and seven mental health centers with
an aggregate of 21,324 licensed beds in 23 states; SunDance
Rehabilitation provides rehabilitation therapy services to affiliated
and non-affiliated centers in 36 states; CareerStaff Unlimited
provides medical staffing services in 40 states; and SolAmor Hospice
provides hospice services in 11 states. For more information, go to
www.sunh.com. 
Forward-looking Statements
 Statements made in this release that are
not historical facts are "forward-looking" statements (as defined in
the Private Securities Litigation Reform Act of 1995) that involve
risks and uncertainties and are subject to change at any time. These
forward-looking statements may include, but are not limited to,
statements containing words such as "anticipate," "believe," "plan,"
"estimate," "expect," "hope," "intend," "may" and similar
expressions. Forward-looking statements in this release include the
Company's expectations regarding the closing of the transaction with
Genesis Healthcare. Factors that could cause actual results to differ
are identified in filings made by the Company with the Securities and
Exchange Commission and include changes in Medicare and Medicaid
reimbursements, including with respect to the CMS Final Rule, and the
Company's ability to mitigate the impact of such changes; the impact
that healthcare reform legislation will have on the Company's
business; the ability to maintain the occupancy rates and payor mix
at the Company's healthcare centers; potential liability for losses
not covered by, or in excess of, insurance; the effects of government
regulations and investigations; the ability of the Company to collect
its accounts receivable on a timely basis; the amount of the
Company's indebtedness; covenants in debt agreements and leases that
may restrict the Company's activities, including the Company's
ability to make acquisitions and incur more indebtedness on favorable
terms; the impact of the economic downturn on the business;
increasing labor costs and the shortage of qualified healthcare
personnel; the Company's ability to receive increases in
reimbursement rates from government payors to cover increased costs;
delays in or failure to satisfy required conditions to the closing of
the proposed merger with Genesis Healthcare, including the receipt of
required regulatory approvals with respect to the transaction;
failure to consummate or delay in consummating the transaction for
other reasons; and disruption from the transaction making it more
difficult to maintain relationships with customers and employees.
More information on factors that could affect the Company's business
and financial results are included in Sun's filings made with the
Securities and Exchange Commission, including its Annual Report on
Form 10-K and Quarterly Reports on Form 10-Q, copies of which are
available on Sun's web site, www.sunh.com. There may be additional
risks of which the Company is presently unaware or that it currently
deems immaterial. 
The forward-looking statements involve known and unknown risks,
uncertainties and other factors that are, in some cases, beyond the
Company's control. Sun cautions investors that any forward-looking
statements made by Sun are not guarantees of future performance and
are only made as of the date of this release. Sun disclaims any
obligation to update any such factors or to announce publicly the
results of any revisions to any of the forward-looking statements to
reflect future events or developments. 
EBITDA, adjust
ed EBITDA, adjusted EBITDAR and free cash flow, as used
in this press release and in the accompanying tables, which are
non-GAAP financial measures, are each reconciled to their respective
GAAP-recognized financial measures in the accompanying tables. 


 
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
                        KEY INCOME STATEMENT FIGURES                        
                                CONSOLIDATED                                
                   (in thousands, except per share data)                    
                                                                            
                                                  For the        For the    
                                                Three Months   Three Months 
                                                   Ended          Ended     
                                               September 30,  September 30, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                                            
                                                                            
Revenue                                        $     460,470  $     468,676 
                                                                            
Center rent expense                                   36,647         35,952 
                                                                            
Depreciation and amortization                          8,654          8,163 
                                                                            
Interest expense, net                                  4,458          4,834 
                                                                            
Pre-tax income                                         6,921       (305,172)
                                                                            
Income tax expense                                     2,932          2,203 
                                                                            
Income (loss) from continuing operations               3,989       (307,375)
                                                                            
Loss from discontinued operations                     (2,702)        (2,031)
                                               -------------  ------------- 
                                                                            
Net income (loss)                              $       1,287  $    (309,406)
                                               =============  ============= 
                                                                            
                                                                            
Diluted (loss) income per share                $        0.05  $      (11.81)
                                               =============  ============= 
                                                                            
                                                                            
----------------------------------------
------------------------------------
                                                                            
Adjusted EBITDAR                               $      56,869  $      64,103 
Margin - Adjusted EBITDAR                               12.4%          13.7%
                                                                            
Adjusted EBITDAR normalized                    $      57,902  $      64,103 
Margin - Adjusted EBITDAR normalized                    12.6%          13.7%
                                                                            
----------------------------------------------------------------------------
                                                                            
                                                                            
----------------------------------------------------------------------------
                                                                            
Adjusted EBITDA                                $      20,222  $      28,151 
Margin - Adjusted EBITDA                                 4.4%           6.0%
                                                                            
Adjusted EBITDA normalized                     $      21,255  $      28,151 
Margin - Adjusted EBITDA normalized                      4.6%           6.0%
                                                                            
----------------------------------------------------------------------------
                                                                            
                                                                            
----------------------------------------------------------------------------
                                                                            
Pre-tax income continuing operations -                                      
 normalized                                    $       7,954  $      14,345 
                                                                            
Income tax expense - normalized                $       3,335  $       4,951 
                                                                            
Income from continuing operations - normalized $       4,619  $       9,394 
                                                                            
Diluted earnings per share from continuing                                  
 operations - normalized                       $        0.17  $        0.36 
                                                                            
----------------------------------------------------------------------------
                                                                            
                                                                            
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table        
 "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."      
                                                                            
See normalizing adjustments in the table "Normalizing Adjustments - Quarter 
 Comparison."                                                               
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
                        KEY INCOME STATEMENT FIGURES                        
                                CONSOLIDATED                                
                   (in thousands, except per share data)                    
                                                                            
                                                  For the        For the    
                                                Nine Months    Nine Months  
                                                   Ended          Ended     
                                               September 30,  September 30, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                                            
                                                                            
Revenue                                        $   1,376,105  $   1,405,558 
                                                                            
Center rent expense                                  109,546        107,394 
                                                                            
Depreciation and amortization                         25,588         23,241 
                                                                            
Interest expense, net                                 13,297         14,688 
                                                                            
Pre-tax income                                        14,842       (269,596)
                                                                            
Income tax expense                                     6,021         16,715 
                                                                            
Income (loss) from continuing operations               8,821       (286,311)
                                                                            
Loss from discontinued operations                     (8,301)        (5,036)
                                               -------------  ------------- 
                                                                            
Net income (loss)                              $         520  $    (291,347)
                                               =============  ============= 
                                                                            
                                                                            
Diluted (loss) income per share                $        0.02  $      (11.19)
                                               =============  ============= 
                                                                            
                                                                            
----------------------------------------------------------------------------
                                                                            
Adjusted EBITDAR                               $     163,462  $     196,355 
Margin - Adjusted EBITDAR                               11.9%          14.0%
                                                                            
Adjusted EBITDAR normalized                    $     166,333  $     196,355 
Margin - Adjusted EBITDAR normalized                    12.1%          14.0%
                                                                            
----------------------------------------------------------------------------
                                                                            
                                                                            
----------------------------------------------------------------------------
                                                                            
Adjusted EBITDA                                $      53,916  $      88,961 
Margin - Adjusted EBITDA                                 3.9%           6.3%
                                                                            
Adjusted EBITDA normalized                     $      56,787  $      88,961 
Margin - Adjusted EBITDA normalized                      4.1%           6.3%
                                                                            
----------------------------------------------------------------------------
                                                                            
                                          
                                  
----------------------------------------------------------------------------
                                                                            
Pre-tax income continuing operations -                                      
 normalized                                    $      17,713  $      49,921 
                                                                            
Income tax expense - normalized                $       7,141  $      19,463 
                                                                            
Income from continuing operations - normalized $      10,572  $      30,458 
                                                                            
Diluted earnings per share from continuing                                  
 operations - normalized                       $        0.40  $        1.17 
                                                                            
----------------------------------------------------------------------------
                                                                            
                                                                            
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table        
 "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."      
                                                                            
See normalizing adjustments in the table "Normalizing Adjustments - Quarter 
 Comparison."                                                               
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
                        CONSOLIDATED BALANCE SHEETS                         
                   (in thousands, except per share data)                    
                                                                            
                                                                            
                                     September 30, 2012   December 31, 2011 
                                     ------------------  ------------------ 
                                         (unaudited)         (unaudited)    
               ASSETS                                                       
                                                                            
Current assets:                                                             
  Cash and cash equivalents          $           63,801  $           57,908 
  Restricted cash                                14,252              15,706 
  Accounts receivable, net                      199,787             202,229 
  Prepaid expenses and other assets              27,323              29,075 
  Assets held for sale                            4,946                   - 
  Deferred tax assets                            61,629              63,170 
                                     ------------------  ------------------ 
                                                                            
    Total current assets                        371,738             368,088 
                                                                            
Property and equipment, net                     143,288             148,298 
Intangible assets, net                           33,358              35,294 
Goodwill                                         34,905              34,496 
Restricted cash, non-current                        354                 353 
Deferred tax assets                             125,409             123,974 
Other assets                                     40,792              45,163 
                                     ------------------  ------------------ 
                                                                            
    Total assets                     $          749,844  $          755,666 
                                     ==================  ================== 
                                                                            
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
                                                                            
Current liabilities:                                                        
  Accounts payable                   $           47,427  $           55,888 
  Accrued compensation and benefits              58,212              61,101 
  Accrued self-insurance                                                    
   obligations, current portion                  58,273              57,810 
  Other accrued liabilities                      47,602              43,139 
  Current portion of long-term debt                                         
   and capital lease obligations                    944               1,017 
                                     ------------------  ------------------ 
                                                                            
  Total current liabilities                     212,458             218,955 
                                                                            
Accrued self-insurance obligations,                                         
 net of current portion                         158,224             157,267 
Long-term debt and capital lease                                            
 obligations, net of current portion             87,989              88,768 
Unfavorable lease obligations, net                5,268               7,110 
Other long-term liabilities                      55,500              58,110 
                                     ------------------  ------------------ 
                                                                            
  Total liabilities                             519,439             530,210 
                                                                            
                                                                            
Stockholders' equity:                                                       
                                                          
                  
  Preferred stock of $.01 par value,                                        
   authorized 3,333 shares, zero                                            
   shares were issued and                                                   
   outstanding as of September 30,                                          
   2012 and December 31, 2011                         -                   - 
  Common stock of $.01 par value,                                           
   authorized 41,667 shares, 25,538                                         
   and 25,146 shares issued and                                             
   outstanding as of September 30,                                          
   2012 and December 31, 2011,                                              
   respectively                                     255                 251 
  Additional paid-in capital                    731,473             726,861 
  Accumulated deficit                          (499,907)           (500,427)
  Accumulated other comprehensive                                           
   loss, net                                     (1,416)             (1,229)
                                     ------------------  ------------------ 
                                                230,405             225,456 
                                     ------------------  ------------------ 
    Total liabilities and                                                   
     stockholders' equity            $          749,844  $          755,666 
                                     ==================  ================== 
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
                       CONSOLIDATED INCOME STATEMENTS                       
                   (in thousands, except per share data)                    
                                                                            
                                                  For the        For the    
                                                Three Months   Three Months 
                                                   Ended          Ended     
                                               September 30,  September 30, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                (unaudited)    (unaudited)  
                                                                            
Total net revenues                             $     460,470  $     468,676 
                                               -------------  ------------- 
Costs and expenses:                                                         
  Operating salaries and benefits                    259,379        263,932 
  Self-insurance for workers' compensation and                              
   general and professional liability                                       
   insurance                                          15,237         14,545 
  Operating administrative costs                      10,635         12,962 
  Other operating costs                               97,619         93,705 
  Center rent expense                                 36,647         35,952 
  General and administrative expenses                 14,447         14,825 
  Depreciation and amortization                        8,654          8,163 
  Provision for losses on accounts receivable          5,250          4,604 
  Interest, net of interest income of $94 and                               
   $103, respectively                                  4,458          4,834 
  Transaction costs                                    1,034              - 
  Loss on sale of assets, net                            189            809 
  Restructuring costs                                      -          2,426 
  Loss on asset impairment                                 -        317,091 
                                               -------------  ------------- 
Total costs and expenses                             453,549        773,848 
                                               -------------  ------------- 
                                                                            
Income (loss) before income taxes and                                       
 discontinued operations                               6,921       (305,172)
Income tax expense                                     2,932          2,203 
                                               -------------  ------------- 
Income (loss) from continuing operations               3,989       (307,375)
                                               -------------  ------------- 
                                                                            
Loss from discontinued operations, net                (2,702)        (2,031)
                                                                            
                                               -------------  ------------- 
Net income (loss)                              $       1,287  $    (309,406)
                                               =============  ============= 
                                                                            
                                                                            
Basic loss per common and common equivalent                                 
 share:                                                                     
  Income (loss) from continuing operations     $        0.15  $      (11.73)
  Loss from discontinued operations, net               (0.10)         (0.08)
                                               -------------  ------------- 
Net income (loss)                              $        0.05  $      (11.81)
                                               =============  ============= 
                                                                            
Diluted loss per common and common equivalent                               
 share:                                                                     
  Income (loss) from continuing operations     $        0.15  $      (11.73)
  Loss from discontinued operations, net               (0.10)         (0.08)
                                               -------------  ------------- 
Net income (lo
ss)                              $        0.05  $      (11.81)
                                               =============  ============= 
                                                                            
Weighted average number of common and common                                
 equivalent shares outstanding:                                             
  Basic                                               27,082         26,203 
  Diluted                                             27,082         26,203 
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
                       CONSOLIDATED INCOME STATEMENTS                       
                   (in thousands, except per share data)                    
                                                                            
                                                  For the        For the    
                                                Nine Months    Nine Months  
                                                   Ended          Ended     
                                               September 30,  September 30, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                (unaudited)    (unaudited)  
                                                                            
Total net revenues                             $   1,376,105  $   1,405,558 
                                               -------------  ------------- 
Costs and expenses:                                                         
  Operating salaries and benefits                    779,976        789,874 
  Self-insurance for workers' compensation and                              
   general and professional liability                                       
   insurance                                          43,744         43,643 
  Operating administrative costs                      34,744         39,333 
  Other operating costs                              289,614        276,999 
  Center rent expense                                109,546        107,394 
  General and administrative expenses                 46,537         45,156 
  Depreciation and amortization                       25,588         23,241 
  Provision for losses on accounts receivable         15,157         14,198 
  Interest, net of interest income of $229 and                              
   $243, respectively                                 13,297         14,688 
  Transaction costs                                    2,871              - 
  Loss on sale of assets, net                            189            809 
  Restructuring costs                                      -          2,728 
  Loss on asset impairment                                 -        317,091 
                                               -------------  ------------- 
Total costs and expenses                           1,361,263      1,675,154 
                                               -------------  ------------- 
                                                                            
Income (loss) before income taxes and                                       
 discontinued operations                              14,842       (269,596)
Income tax expense                                     6,021         16,715 
                                               -------------  ------------- 
Income (loss) from continuing operations               8,821       (286,311)
                                               -------------  ------------- 
                                                                            
Loss from discontinued operations, net                (8,301)        (5,036)
                                                                            
                                               -------------  ------------- 
Net income (loss)                              $         520  $    (291,347)
                                               =============  ============= 
                                                                            
                                                                            
Basic loss per common and common equivalent                                 
 share:                                                                     
  Income (loss) from continuing operations     $        0.33  $      (11.00)
  Loss from discontinued operations, net               (0.31)         (0.19)
                                               -------------  ------------- 
Net income (loss)                              $        0.02  $      (11.19)
                                               =============  ============= 
                                                                            
Diluted loss per common and common equivalent                               
 share:                                                                     
  Income (loss) from continuing operations     $        0.33  $      (11.00)
  Loss from discontinued operations, net               (0.31)         (0.19)
                                               -------------  ------------- 
Net income (loss)                              $        0.02  $      (11.19)
                                               =============  ============= 
                                                                            
Weighted average number of common and common                                
 equivalent shares outstanding:                                             
  Basic                                               26,732         26,038 
  Diluted                                             26,732         26,038 
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                               (in thousands)                               
                                                                            
                                                  For the        For the    
                                                Three Months   Three Months 
                                                   Ended          Ended     
                                               September 30,  September 30, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                (unaudited)    (unaudited)  
                                                                            
Cash flows from operating activities:                                       
  Net income (loss)                            $       1,287  $    (309,406)
  Adjustments to reconcile net income (loss)                                
   to net cash provided by operating                                        
   activities, including discontinued                                       
   operations:                                                              
    Depreciation and amortization                      8,654          8,335 
    Amortization of favorable and unfavorable                               
     lease intangibles                                  (507)          (492)
    Provision for losses on accounts                                        
     receivable                                        5,403          4,975 
    Loss on sale of assets, including                                       
     discontinued operations, net                        188          1,925 
    Loss on asset impairment                               -        317,091 
    Stock-based compensation expense                   1,233          2,359 
    Deferred taxes                                       386           (105)
  Changes in operating assets and liabilities,                              
   net of acquisitions:                                                     
    Accounts receivable                                7,641             23 
    Restricted cash                                       78             52 
    Prepaid expenses and other assets                  1,800         (1,600)
    Accounts payable        
                           2,756          1,595 
    Accrued compensation and benefits                 (5,666)       (11,717)
    Accrued self-insurance obligations                 3,821          3,618 
    Other accrued liabilities                            (36)         2,104 
    Other long-term liabilities                         (667)          (880)
                                               -------------  ------------- 
      Net cash provided by operating                                        
       activities                                     26,371         17,877 
                                               -------------  ------------- 
                                                                            
Cash flows from investing activities:                                       
  Capital expenditures                                (6,722)       (14,190)
  Proceeds from sale of assets                           781          1,809 
                                               -------------  ------------- 
    Net cash used for investing activities            (5,941)       (12,381)
                                               -------------  ------------- 
                                                                            
Cash flows from financing activities:                                       
  Principal repayments of long-term debt and                                
   capital lease obligations                            (277)        (2,806)
                                               -------------  ------------- 
    Net cash used for financing activities              (277)        (2,806)
                                               -------------  ------------- 
                                                                            
Net increase in cash and cash equivalents             20,153          2,690 
Cash and cash equivalents at beginning of                                   
 period                                               43,648         88,489 
                                               -------------  ------------- 
Cash and cash equivalents at end of period     $      63,801  $      91,179 
                                               =============  ============= 
                                                                            
----------------------------------------------------------------------------
Reconciliation of net cash provided by                                      
 operating activities to free cash flow:                                    
                                                                            
    Net cash provided by operating activities  $      26,371  $      17,877 
    Capital expenditures                              (6,722)       (14,190)
                                               -------------  ------------- 
      Free cash flow                           $      19,649  $       3,687 
                                               =============  ============= 
                                                                            
----------------------------------------------------------------------------
                                                                            
Free cash flow is defined as net cash flow provided by operating activities 
 less cash used for capital expenditures.                                   
Free cash flow is used by management to evaluate discretionary cash flow    
 potentially available for principal repayment and other financing          
 activities.                                                                
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                               (in thousands)                               
                                                                            
                                                  For the        For the    
                                                Nine Months    Nine Months  
                                                   Ended          Ended     
                                               September 30,  September 30, 
                                                    2012           2011     
                                               -------------  ------------- 
                                                (unaudited)    (unaudited)  
                                                                            
Cash flows from operating activities:                                       
  Net income (loss)                            $         520  $    (291,347)
  Adjustments to reconcile net income (loss)                                
   to net cash provided by operating                                        
   activities, including discontinued                                       
   operations:                                                              
    Depreciation and amortization                     25,740         23,879 
    Amortization of favorable and unfavorable                               
     lease intangibles                                (1,527)        (1,466)
    Provision for losses on accounts                                        
     receivable                                       15,866         15,479 
    Loss on sale of assets, including                                       
     discontinued operations, net                        257          1,925 
    Loss on asset impairment                               -        317,091 
    Stock-based compensation expense                   5,041          5,160 
    Deferred taxes                                       229          9,871 
  Changes in operating assets and liabilities,                              
   net of acquisitions:                                                     
    Accounts receivable                              (13,568)       (12,555)
    Restricted cash                                    1,453         (1,876)
    Prepaid expenses and other assets                  4,125         (1,410)
    Accounts payable                                  (7,358)        (1,906)
    Accrued compensation and benefits                 (2,889)       (12,298)
    Accrued self-insurance obligations                 1,420           (294)
    Other accrued liabilities                          4,386          1,158 
    Other long-term liabilities                       (2,920)        (2,098)
                                               -------------  ------------- 
      Net cash provided by operating                                        
       activities                                     30,775         49,313 
                                               -------------  ------------- 
                                                                            
Cash flows from investing activities:                                       
  Capital expenditures                               (24,551)       (32,346)
  Proceeds from sale of assets                           781          1,809 
  Acquisitions, net of cash acquired                    (260)          (356)
                                               -------------  ------------- 
      Net cash used for investing activities         (24,030)       (30,893)
                                               -------------  ------------- 
                                                                            
Cash flows from financing activities:                                       
  Principal repayments of long-term debt and                                
   capital lease obligations  
                          (852)        (8,404)
                                               -------------  ------------- 
      Net cash used for financing activities            (852)        (8,404)
                                               -------------  ------------- 
                                                                            
Net increase in cash and cash equivalents              5,893         10,016 
Cash and cash equivalents at beginning of                                   
 period                                               57,908         81,163 
                                               -------------  ------------- 
Cash and cash equivalents at end of period     $      63,801  $      91,179 
                                               =============  ============= 
                                                                            
----------------------------------------------------------------------------
Reconciliation of net cash provided by                                      
 operating activities to free cash flow:                                    
                                                                            
    Net cash provided by operating activities  $      30,775  $      49,313 
    Capital expenditures                             (24,551)       (32,346)
                                               -------------  ------------- 
      Free cash flow                           $       6,224  $      16,967 
                                               =============  ============= 
                                                                            
----------------------------------------------------------------------------
                                                                            
Free cash flow is defined as net cash flow provided by operating activities 
 less cash used for capital expenditures.                                   
Free cash flow is used by management to evaluate d
iscretionary cash flow    
 potentially available for principal repayment and other financing          
 activities.                                                                
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
     RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA and ADJUSTED EBITDAR     
                               (in thousands)                               
                                                                            
                                            For the            For the      
                                      Three Months Ended Three Months Ended 
                                      September 30, 2012 September 30, 2011 
                                      ------------------ ------------------ 
                                          (unaudited)        (unaudited)    
                                                                            
Total net revenues                    $          460,470 $          468,676 
                                      ------------------ ------------------ 
                                                                            
Net income (loss)                     $            1,287 $         (309,406)
                                      ------------------ ------------------ 
                                                                            
                                                                            
  Income (loss) from continuing                                             
   operations                                      3,989           (307,375)
                                                                            
  Income tax expense                               2,932              2,203 
                                                                            
  Interest, net                                    4,458              4,834 
                                                                            
  Depreciation and amortization                    8,654              8,163 
                                      ------------------ ------------------ 
                                                                            
EBITDA                                $           20,033 $         (292,175)
                                                                            
  Loss on sale of assets, net                        189                809 
                                                                            
  Restructuring costs                                  -              2,426 
                                                                            
  Loss on asset impairment                             -            317,091 
                                                                            
                                      ------------------ ------------------ 
                                                                            
Adjusted EBITDA                       $           20,222 $           28,151 
                                                                            
  Center rent expense                             36,647             35,952 
                                      ------------------ ------------------ 
                                                                            
Adjusted EBITDAR                      $           56,869 $           64,103 
                                      ================== ================== 

 
EBITDA is defined as earnings before loss on discontinued operations,
income taxes, interest, net, depreciation and amortization. Adjusted
EBITDA is defined as EBITDA before restructuring costs. Adjusted
EBITDAR is defined as Adjusted EBITDA before center rent expense.
Adjusted EBITDA and Adjusted EBITDAR are used by management to
evaluate financial performance and resource allocation for each
entity within the operating units and for the Company as a whole.
Adjusted EBITDA and Adjusted EBITDAR are commonly used as analytical
indicators within the healthcare industry and also serve as measures
of leverage capacity and debt service ability. Adjusted EBITDA and
Adjusted EBITDAR should not be considered as measures of financial
performance under generally accepted accounting principles. As the
items excluded from Adjusted EBITDA and Adjusted EBITDAR are
significant components in understanding and assessing finance
performance, Adjusted EBITDA and Adjusted EBITDAR should not be
considered in isolation or as alternatives to net income, cash flows
generated by or used in operating, investing or financing activities
or other financial statement data presented in the consolidated
financial statements as indicators of financial performance or
liquidity. Because Adjusted EBITDA and Adjusted EBITDAR are not
measurements determined in accordance with U.S. generally accepted
accounting principles and are thus susceptible to varying
calculations. Adjusted EBITDA and Adjusted EBITDAR as presented may
not be comparable to other similarly titled measures of other
companies.  


 
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
     RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA and ADJUSTED EBITDAR     
                               (in thousands) 
                              
                                                                            
                                            For the            For the      
                                       Nine Months Ended  Nine Months Ended 
                                      September 30, 2012 September 30, 2011 
                                      ------------------ ------------------ 
                                          (unaudited)        (unaudited)    
                                                                            
Total net revenues                    $        1,376,105 $        1,405,558 
                                      ------------------ ------------------ 
                                                                            
Net income (loss)                     $              520 $         (291,347)
                                      ------------------ ------------------ 
                                                                            
                                                                            
  Income (loss) from continuing                                             
   operations                                      8,821           (286,311)
                                                                            
  Income tax expense                               6,021             16,715 
                                                                            
  Interest, net                                   13,297             14,688 
                                                                            
  Depreciation and amortization                   25,588             23,241 
                                      ------------------ ------------------ 
                                                                            
EBITDA                                $           53,727 $         (231,667)
                                                                  
          
  Loss on sale of assets, net                        189                809 
                                                                            
  Restructuring costs                                  -              2,728 
                                                                            
  Loss on asset impairment                             -            317,091 
                                      ------------------ ------------------ 
                                                                            
Adjusted EBITDA                       $           53,916 $           88,961 
                                                                            
  Center rent expense                            109,546            107,394 
                                      ------------------ ------------------ 
                                                                            
Adjusted EBITDAR                      $          163,462 $          196,355 
                                      ================== ================== 

 
EBITDA is defined as earnings before loss on discontinued operations,
income taxes, interest, net, depreciation and amortization. Adjusted
EBITDA is defined as EBITDA before restructuring costs. Adjusted
EBITDAR is defined as Adjusted EBITDA before center rent expense.
Adjusted EBITDA and Adjusted EBITDAR are used by management to
evaluate financial performance and resource allocation for each
entity within the operating units and for the Company as a whole.
Adjusted EBITDA and Adjusted EBITDAR are commonly used as analytical
indicators within the healthcare industry and also serve as measures
of leverage capacity and debt service ability. Adjusted EBITDA and
Adjusted EBITDAR should not be considered as measures of financial
performance under generally accepted accounting principles. As the
items excluded from Adjusted EBITDA and Adjusted EBITDAR are
significant components in understanding and assessing finance
performance, Adjusted EBITDA and Adjusted EBITDAR should not be
considered in isolation or as alternatives to net income, cash flows
generated by or used in operating, investing or financing activities
or other financial statement data presented in the consolidated
financial statements as indicators of financial performance or
liquidity. Adjusted EBITDA and Adjusted EBITDAR are not measurements
determined in accordance with U.S. generally accepted accounting
principles and are thus susceptible to varying calculations. Adjusted
EBITDA and Adjusted EBITDAR as presented may not be comparable to
other similarly titled measures of other companies.  


 
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
   RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED   
                         EBITDA and ADJUSTED EBITDAR                        
                              ($ in thousands)                              
                                                                            
               For the Three Months Ended September 30, 2012                
                                (unaudited)                                 
                                                                            
                        Rehabili-                     Elimination           
                         tation    Medical                 of               
             Inpatient   Therapy  Staffing   Other &   Affiliated  Consoli- 
              Services  Services  Services  Corp Seg    Revenue     dated 
             ---------  --------  --------  --------  -----------  -------- 
                                                                            
Nonaffiliated                                                               
 revenue     $ 409,750  $ 29,032  $ 21,686  $      2  $         -  $460,470 
Affiliated                                                                  
 revenue             -    31,885       432         -      (32,317)        - 
             ---------  --------  --------  --------  -----------  -------- 
  Total                                                                     
   revenue   $ 409,750  $ 60,917  $ 22,118  $      2  $   (32,317) $460,470 
             ---------  --------  --------  --------  -----------  -------- 
                                                                            
Income (loss)                                                               
 from                                                                       
 continuing                                                                 
 operations  $  22,780  $  4,068  $  1,238  $(24,097) $         -  $  3,989 
                                                                            
Income tax                                                                  
 expense             -         -         -     2,932            -     2,932 
                                                                            
Interest, net      (53)        -         -     4,511            -     4,458 
                                                                            
Depreciation                                                                
 and                                                                        
 amortization    7,276       267       191       920            -     8,654 
             ---------  --------  --------  --------  -----------  -------- 
                                                                            
  EBITDA     $  30,003  $  4,335  $  1,429  $(15,734) $         -  $ 20,033 
                                                                            
Loss on sale                                                                
 of assets,                                                                 
 net                 -         -         -       189            -       189 
             ---------  --------  --------  --------  -----------  -------- 
                                                                            
  Adjusted                                                                  
   EBITDA    $  30,003  $  4,335  $  1,429  $(15,545) $         -  $ 20,222 
                                                                            
Center rent                                                                 
 expense        36,323       154       170         -            -    36,647 
             ---------  --------  --------  --------  -----------  -------- 
                                                                            
  Adjusted                                                                  
   EBITDAR   $  66,326  $  4,489  $  1,599  $(15,545) $         -  $ 56,869 
             =========  ========  ========  ========  ===========  ======== 
                                                                            
                                                                            
  Normalized                                                                
   Adjusted                                                                 
   EBITDA    $  30,003  $  4,335  $  1,429  $(14,511) $         -  $ 21,256 
  Normalized                                                                
   Adjusted                                                                 
   EBITDAR   $  66,326  $  4,489  $  1,599  $(14,511) $         -  $ 57,903 
                                                                            
                                                                            
     Adjusted  
                                                             
       EBITDA                                                               
       margin      7.3%      7.1%      6.5%                             4.4%
                                                                            
     Adjusted                                                               
      EBITDAR                                                               
       margin     16.2%      7.4%      7.2%                            12.4%
                                                                            
   Normalized                                                               
     Adjusted                                                               
       EBITDA                                                               
       margin      7.3%      7.1%      6.5%                             4.6%
                                                                            
   Normalized                                                               
     Adjusted                                                               
      EBITDAR                                                               
       margin     16.2%      7.4%      7.2%                            12.6%
                                                                            
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the      
 table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted          
 EBITDAR."                                                                  
                                                                            
See normalizing adjustments in the table "Normalizing Adjustments - Quarter 
 Comparison."                                                               
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
   RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED   
                         EBITDA and ADJUSTED EBITDAR                        
                              ($ in thousands)                              
                                                                            
                For the Nine Months Ended September 30, 2012                
                                (unaudited)                                 
                                                                            
                         Rehabili-                  
                          tation    Medical         Elimination of
             Inpatient   Therapy   Staffing  Other &  Affiliated   Consoli- 
              Services   Services  Services Corp Seg    Revenue     dated 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
Nonaffiliated                                                               
 revenue     $1,220,673  $ 88,858  $66,559  $     15  $       -  $1,376,105 
Affiliated                                                                  
 revenue              -    98,152    1,982         -   (100,134)          - 
             ----------  --------  -------  --------  ---------  ---------- 
  Total                                                                     
   revenue   $1,220,673  $187,010  $68,541  $     15  $(100,134) $1,376,105 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
Income (loss)                                                               
 from                                                                       
 continuing                                                                 
 operations  $   65,104  $ 11,381  $ 4,345  $(72,009) $       -  $    8,821 
                                                                            
Income tax                                                                  
 expense              -         -        -     6,021          -       6,021 
                                                                            
Interest, net       (81)        -       (3)   13,381          -      13,297 
                                                                            
Depreciation                                                                
 and                                                                        
 amortization    21,420       778      562     2,828          -      25,588 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
  EBITDA     $   86,443  $ 12,159  $ 4,904  $(49,779) $       -  $   53,727 
                                                                            
                                                                            
Loss on sale                                                                
 of assets,                                                                 
 net                  -         -        -       189          -         189 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
  Adjusted                                                                  
   EBITDA    $   86,443  $ 12,159  $ 4,904  $(49,401) $       -  $   54,105 
                                                                            
Center rent                                                                 
 expense        108,606       432      508         -          -     109,546 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
  Adjusted                                                                  
   EBITDAR   $  195,049  $ 12,591  $ 5,412  $(49,401) $       -  $  163,651 
             ==========  ========  =======  ========  =========  ========== 
                                                                            
                                                                            
  Normalized                                                                
   Adjusted                                                                 
   EBITDA    $   86,443  $ 12,159  $ 4,904  $(46,530) $       -  $   56,976 
  Normalized                                                                
   Adjusted                                                                 
   EBITDAR   $  195,049  $ 12,591  $ 5,412  $(46,530) $       -  $  166,522 
                                                                            
                                                                            
     Adjusted                                                               
       EBITDA                                                               
       margin       7.1%      6.5%     7.2%                             3.9%
                                                                            
     Adjusted                                                               
      EBITDAR                                                               
       margin      16.0%      6.7%     7.9%                            11.9%
                                                                            
   Normalized                                                               
     Adjusted                                                               
       EBITDA                                                               
       margin       7.1%      6.5%     7.2%          
                   4.1%
                                                                            
   Normalized                                                               
     Adjusted                                                               
      EBITDAR                                                               
       margin      16.0%      6.7%     7.9%                            12.1%
                                                                            
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the      
 table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted          
 EBITDAR."                                                                  
                                                                            
See normalizing adjustments in the table "Normalizing Adjustments - Year to 
 Date Comparison."                                                          
                                                                            
                                                                            
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
   RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED   
                         EBITDA and ADJUSTED EBITDAR                        
                              ($ in thousands)                              
                                                                            
               For the Three Months Ended September 30, 2011                
                                (unaudited)                                 
                                                                            
                       Rehabili-                     Elimination           
                        tation    Medical                 of               
            Inpatient   Therapy  Staffing   Other &   Affiliated   Consoli- 
             Services  Services  Services  Corp Seg    Revenue      dated 
            ---------  --------  --------  --------  -----------  --------- 
                                                                            
Nonaffiliated                                                              
 revenue    $ 418,097  $ 29,568  $ 20,996  $     15  $         -  $ 468,676 
Affiliated                                                                  
 revenue            -    32,791       757         -      (33,548)         - 
            ---------  --------  --------  --------  -----------  --------- 
  Total                                                                     
   revenue  $ 418,097  $ 62,359  $ 21,753  $     15  $   (33,548) $ 468,676 
            ---------  --------  --------  --------  -----------  --------- 
                                                                            
Income                                                                      
 (loss) from                                                                
 continuing                                                                 
 operations $(285,549) $  2,296  $  1,221  $(25,343) $         -  $(307,375)
                                                                            
Income tax                                                                  
 expense            -         -         -     2,203            -      2,203 
                                                                            
Interest,                                                                   
 net              (33)        -         -     4,867            -      4,834 
                                                                            
Depreciation                                                                
 and                                                                        
 amortization   6,770       236       187       970            -      8,163 
            ---------  --------  --------  --------  -----------  --------- 
                                                                            
  EBITDA    $(278,812) $  2,532  $  1,408  $(17,303) $         -  $(292,175)
                                                                            
Loss on sale                                                                
 of assets,                                                                 
 net              809         -         -         -            -        809 
                                                                            
Restructuring                                                              
 costs              -         -         -     2,426            -      2,426 
                                                                            
Loss on                                                                     
 asset                                                                      
 impairment   317,091         -         -         -            -    317,091 
            ---------  --------  --------  --------  -----------  --------- 
                                                                            
  Adjusted                                                                  
   EBITDA   $  39,088  $  2,532  $  1,408  $(14,877) $         -  $  28,151 
                                                                            
Center rent                                                                 
 expense       35,642       140       170         -            -     35,952 
            ---------  --------  --------  --------  -----------  --------- 
                                                                            
  Adjusted                                                                  
   EBITDAR  $  74,730  $  2,672  $  1,578  $(14,877) $         -  $  64,103 
            =========  ========  ========
  ========  ===========  ========= 
                                                                            
                                                                            
                                                                            
                                                                            
    Adjusted                                                                
      EBITDA                                                                
      margin      9.3%      4.1%      6.5%                              6.0%
                                                                            
    Adjusted                                                                
     EBITDAR                                                                
      margin     17.9%      4.3%      7.3%                             13.7%
                                                                            
                                                                            
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the      
 table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted          
 EBITDAR."                                                                  
                                                                            
                                                                            

 
                                                                            
                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                 
                                                                            
   RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED   
                         EBITDA and ADJUSTED EBITDAR                        
                              ($ in thousands)                              
                                                                            
                For the Nine Months Ended September 30, 2011                
                                (unaudited)                                 
                                                                            
                         Rehabili-                  
                          tation    Medical         Elimination of
             Inpatient   Therapy   Staffing  Other &  Affiliated   Consoli- 
              Services   Services  Services Corp Seg    Revenue     dated 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
Nonaffiliated                                                               
 revenue     $1,250,568  $ 89,645  $65,309  $     36  $       -  $1,405,558 
Affiliated                                                                  
 revenue              -    98,710    2,079         -   (100,789)          - 
             ----------  --------  -------  --------  ---------  ---------- 
  Total                                                                     
   revenue   $1,250,568  $188,355  $67,388  $     36  $(100,789) $1,405,558 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
Income (loss)                                                               
 from                                                                       
 continuing                                                                 
 operations  $ (217,007) $  8,495  $ 4,082  $(81,881) $       -  $ (286,311)
                                                                            
Income tax                                                                  
 expense              -         -        -    16,715          -      16,715 
                                                                            
Interest, net       (69)        -        1    14,756          -      14,688 
                                                                            
Depreciation                                                                
 and                                                                        
 amortization    19,331       689      561     2,660          -      23,241 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
  EBITDA     $ (197,745) $  9,184  $ 4,644  $(47,750) $       -  $ (231,667)
                                                                            
Loss on sale                                                                
 of assets,                                                                 
 net                809         -        -         -          -         809 
                                                                            
Restructuring                                                               
 costs              302         -        -     2,426          -       2,728 
                                                                            
Loss on asset                                                               
 impairment     317,091         -        -         -          -     317,091 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
  Adjusted                                                                  
   EBITDA    $  120,457  $  9,184  $ 4,644  $(45,324) $       -  $   88,961 
                                                                            
Center rent                                                                 
 expense        106,487       394      513         -          -     107,394 
             ----------  --------  -------  --------  ---------  ---------- 
                                                                            
  Adjusted                                                                  
   EBITDAR   $  226,944  $  9,578  $ 5,157  $(45,324) $       -  $  196,355 
             ==========  ========  =======  ========  =========  ========== 
                                                                            
                                                                            
                                                                            
                                                                            
     Adjusted                                                               
       EBITDA                                                               
       margin       9.6%      4.9%     6.9%                             6.3%
                                                                            
     Adjusted                                                               
      EBITDAR                                                               
       margin      18.1%      5.1%     7.7%                            14.0%
                                                                            
                                                                            
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the
 table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted
 EBITDAR."
                                                                            
                                                                            
                                                                            
              Sun Healthcare Group, Inc. and Subsidiaries                   
                     Selected Operating Statistics                          
                         Continuing Operations                              
                                                                            
                         For the                       For the              
                   Three Months Ended             Nine Months Ended         
                      September 30,                 September 30,           
                 ----------------------      --------------------------     
                   2012          2011           2012            2011        
Consolidated                                                                
 Company                                                                    
----------------------------------------------------------------------------
                                                                            
Revenues - Non-                                                             
 affiliated (in                                                             
 thousands)                                                                 
----------------                                                            
 Skilled Nursing                                                            
  and similar                                                               
  facilities     $393,560      $402,703      $1,172,804      $1,205,479     
 Hospice           15,719        14,885          46,491          43,647     
 Other -                                                                    
  Inpatient                                                                 
  Services            471           509           1,378           1,442     
                 --------      --------      ----------      ----------     
 Inpatient                                                                  
  Services        409,750       418,097       1,220,673       1,250,568     
                                                                            
 Rehabilitation                                                             
  Therapy                                                                   
  Services         29,032        29,568          88,858          89,645     
 Medical                                                                    
  Staffing   
                                                               
  Services         21,686        20,996          66,559          65,309     
 Other - non-                                                               
  core                                                                      
  businesses            2            15              15              36     
                 --------      --------      ----------      ----------     
  Total          $460,470      $468,676      $1,376,105      $1,405,558     
                 ========      ========      ==========      ==========     
                                                                            
                                                                            
Revenue Mix -                                                               
 Non-affiliated                                                             
 (in thousands)                                                             
----------------                                                            
 Medicare        $128,180  28% $149,147  32% $  397,867  29% $  454,591  32%
 Medicaid         195,441  42%  184,754  39%    570,734  41%    541,977  39%
 Private and                                                                
  Other           106,648  24%  106,541  23%    320,285  24%    324,169  23%
 Managed Care /                                                             
  Insurance        24,568   5%   22,777   5%     71,311   5%     69,133   5%
 Veterans           5,633   1%    5,457   1%     15,908   1%     15,688   1%
                 -------- ---- -------- ---- ---------- ---- ---------- ----
  Total          $460,470 100% $468,676 100% $1,376,105 100% $1,405,558 100%
                 ======== ==== ======== ==== ========== ==== ========== ====
                                                                            
                                                                            
----------------------------------------------------------------------------
                                                                            
Inpatient                                                                   
 Services Stats                                                             
----------------------------------------------------------------------------
                                                                            
 Number of                                                                  
  centers:            190           190             190             190     
 Number of                                                                  
  available                                                                 
  beds:            20,774        20,803          20,774          20,803     
 Occupancy %:       87.0%         87.2%           87.1%           87.4%     
                                                                            
                                                                            
 Payor Mix %                                                                
  based on                                                                  
  patient days:                                                             
   Medicare -                                                               
    SNF Beds        13.9%         15.0%           14.6%           15.6%     
   Managed care                                                             
    / Ins. - SNF                                                            
    Beds             4.1%          3.8%            4.1%            4.0%     
                 --------      --------      ----------      ----------     
    Total SNF                                                               
     skilled mix    18.0%         18.8%           18.7%           19.6%     
                 --------      --------      ----------      ----------     
                                                                            
  Medicare          12.7%         13.7%           13.4%           14.3%     
  Medicaid          64.2%         62.8%           63.7%           62.3%     
  Private and                                                               
   Other            17.9%         18.7%           17.9%           18.5%     
  Managed Care /                                                            
   Insurance         3.8%          3.5%            3.7%            3.6%     
  Veterans           1.4%          1.3%            1.3%            1.3%     
                                                                            
 Revenue Mix %                                                              
  of revenues:                                                              
   Medicare -                                                               
    SNF Beds        29.1%         33.7%           30.5%           34.6%     
   Managed care                                                             
    / Ins. - SNF                                                            
    Beds             6.3%          5.8%            6.2%            5.9%     
                 --------      --------      ----------      ----------     
    Total SNF                                                               
     skilled mix    35.4%         39.5%           36.7%           40.5%     
                 --------      --------      ----------      ----------     
                                                                            
  Medicare          30.2%         34.5%           31.5%           35.2%     
  Medicaid          47.7%         44.2%           46.8%           43.3%     
  Private and                                                               
   Other            14.8%         14.6%           14.6%           14.7%     
  Managed Care /                                                            
   Insurance         5.9%          5.4%            5.8%            5.5%     
  Veterans           1.4%          1.3%            1.3%            1.3%     
                                                                            
                                                                            
 Revenues PPD:                                                              
  Medicare (Part                                                            
   A)            $ 465.80      $ 520.11      $   463.52      $   520.92     
  Medicare                                                                  
   Blended Rate                                                             
   (Part A & B)  $ 513.99      $ 563.52      $   509.23      $   559.86     
  Medicaid       $ 183.16      $ 176.42      $   180.65      $   175.21     
  Medicaid, net                                                             
   of provider                                                              
   taxes         $ 165.95      $ 160.69      $   163.50      $   159.84     
  Private and                                                               
   Other         $ 189.42      $ 186.05      $   189.87      $   190.06     
  Managed Care /                                                            
   Insurance     $ 387.04      $ 384.33      $   380.05      $   377.69     
  Veterans       $ 242.67      $ 257.15      $   246.28      $   249.90     
                                                                            
----------------------------------------------------------------------------
                                                                            
Rehab contracts                                                             
----------------------------------------------------------------------------
                                                                            
 Affiliated           178           178             178             178     
 Non-affiliated       338           343             338             343     
                                                                            
 Average Qtrly                                                              
  Revenue per                                                               
  Contract (in                                                              
  thousands)     $    118      $    120      $      121      $      121     
                                                                            
----------------------------------------------------------------------------
                                                                            
                                                                            
                                                                            
                 SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                
                                                                            
                NORMALIZING ADJUSTMENTS - QUARTER COMPARISON                
                    (in thousands, except per share data)                   
                                                                            
                                 AS REPORTED - 3rd QUARTER 2012             
                   ---------------------------------------------------------
                                                    Income                      
                    
                                                     from              Net   
                           Adjusted Adjusted  Pre- Continuing  Disc   (Loss) 
                   Revenue  EBITDAR  EBITDA   tax  Operations  Ops    Income 
                   -------- ------- ------- ------ -------- -------  -------
                                                                            
As Reported 3rd                                                             
 QUARTER 2012     $460,470 $56,869 $20,222 $6,921 $  3,989 $(2,702) $ 1,287
Percent of Revenue            12.4%    4.4%   1.5%     0.9%   -0.6%     0.3%
                                                                            
Normalizing                                                                 
 Adjustments:                                                               
------------------                                                          
                                                                            
  Transaction                                                               
   costs                  -   1,033   1,033  1,033      630       -      630
                   -------- ------- ------- ------ -------- -------  -------
                                                                            
Normalized As                                                               
 Reported - 3rd                                                             
 QUARTER 2012      $460,470 $57,902 $21,255 $7,954 $  4,619 $(2,702) $ 1,917
                   ======== ======= ======= ====== ======== =======  =======
Percent of Revenue            12.6%    4.6%   1.7%     1.0%   -0.6%     0.4%
                                                                            
       As Reported                                 $   0.15 $ (0.10) $  0.05
Diluted EPS:                                                                
     As Normalized                                 $   0.17 $ (0.10) $  0.07
                                                                            
                                                                            
                            AS REPORTED - 3rd QUARTER 2011                  
          ----------------------------------------------------------------- 
                                               Income
                                                from                Net   
                  Adjusted Adjusted  Pre-    Continuing   Disc    (Loss) 
          Revenue  EBITDAR  EBITDA   tax     Operations    Ops    Income 
          -------- ------- ------- ---------  ---------  -------  --------- 
                                                                            
As Reported                                                                   
 - 3rd                                                                      
 QUARTER                                                                    
 2011     $468,676 $64,103 $28,151 $(305,172) $(307,375) $(2,031) $(309,406)
Percent of                                                                  
   Revenue           13.7%    6.0%    -65.1%     -65.6%    -0.4%     -66.0% 
                                                                            
Normalizing                                                                     
     
 Adjustments:                                                                   
     
----------                                                                  
                                                                            
  Restructur-
   ing costs     -       -       -     2,426      1,480        -      1,480 
  Impairment
   of assets     -       -       -   317,091    315,289        -    315,289 
          -------- ------- ------- ---------  ---------  -------  --------- 
                                                                            
Normalized                                                                  
 As Reported                                                                   
 - 3rd                                                                      
 QUARTER                                                                    
 2011     $468,676 $64,103 $28,151 $  14,345  $   9,394  $(2,031) $   7,363 
          ======== ======= ======= =========  =========  =======  ========= 
Percent of                                                                  
   Revenue           13.7%    6.0%      3.1%       2.0%    -0.4%       1.6% 
                                                                            
        As                                                                  
  Reported                                    $  (11.73) $ (0.08) $  (11.81)
Diluted EPS:                                                                    
   
        As                                                                  
 Normalized                                   $    0.36  $ (0.08) $    0.28 
                                                                            
                                                                            
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table        
 "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."      
                                                                            
Normalizing adjustments are transactions or adjustments not related to      
 ongoing operations and consist of transaction costs associated with the    
 Company's sale to Genesis Healthcare.                                      
                                                                            
Since normalizing adjustments are not measurements determined in accordance 
 with U.S. generally accepted accounting principles and are thus susceptible
 to varying calculations and interpretations, the information presented     
 herein may not be comparable to other similarly described information of   
 other companies.                                                           
                                                                            
                                                                            

 
                                                                            
                 SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                
                                                                            
              NORMALIZING ADJUSTMENTS - YEAR TO DATE COMPARISON             
                    (in thousands, except per share data)                   
                                                                            
                             AS REPORTED - NINE MONTHS 2012                 
            --------------------------------------------------------------- 
                                                  Income
                                                   from               Net   
                      Adjusted  Adjusted  Pre-   Continuing   Disc   (Loss) 
            Revenue    EBITDAR  EBITDA    tax    Operations   Ops    Income 
            ---------- -------- ------- -------  ---------  -------  ------ 
                                                                            
As Reported                                                                 
 - Nine                                                                      
 Months                                                                     
 2012       $1,376,105 $163,462 $53,916 $14,842  $   8,821  $(8,301) $  520 
 Percent of                                                                 
    Revenue               11.9%    3.9%    1.1%       0.6%    -0.6%    0.0% 
                                                                            
Normalizing                                                                 
 Adjustments:                                                                   
      
-----------                                                                 
                                                                            
  Transaction
   costs             -    2,871   2,871   2,871      1,751        -   1,751 
            ---------- -------- ------- -------  ---------  -------  ------ 
                                                                            
Normalized As
 Reported -                                                                 
 Nine                                                                       
 Months                                                                     
 2012       $1,376,105 $166,333 $56,787 $17,713  $  10,572  $(8,301) $2,271 
            ========== ======== ======= =======  =========  =======  ====== 
 Percent of                                                                 
    Revenue               12.1%    4.1%    1.3%       0.8%    -0.6%    0.2% 
 
         As 
   Reported                                      $    0.33  $ (0.31) $ 0.02 
Diluted EPS:                                                                    
   
         As                                                                 
 Normalized                                      $    0.40  $ (0.32) $ 0.08 
                                                                            
                                                                            

 
                          AS REPORTED - NINE MONTHS 2011                    
       -------------------------------------------------------------------- 
                                               Income
                                                from                Net   
                 Adjusted  Adjusted  Pre-    Continuing   Disc     (Loss) 
        Revenue   EBITDAR   EBITDA   tax     Operations   Ops      Income 
       ---------- -------- ------- ---------  ---------  -------  --------- 
                                                                            
As                                                                          
 Reported -                                                                     
  
 Nine                                                                       
 Months                                                                     
 2011  $1,405,558 $196,355 $88,961 $(269,596) $(286,311) $(5,036) $(291,347)
Percent                                                                     
     of                                                                     
Revenue              14.0%    6.3%    -19.2%     -20.4%    -0.4%     -20.7% 
                                                                            
Normalizing                                                                     
  
 Adjustments:                                                                   
  
-------                                                                     
                                                                            
  Restructur-
   ing costs    -        -       -     2,426      1,480        -      1,480 
  Impair-
   ment of                                                                     
   assets       -        -       -   317,091    315,289        -    315,289 
       ---------- -------- ------- ---------  ---------  -------  --------- 
                                                                            
Normalized As                                                                   
  
 Reported -                                                                     
  
 Nine                                                                       
 Months                                                                     
 2011  $1,405,558 $196,355 $88,961 $  49,921  $  30,458  $(5,036) $  25,422 
       ========== ======== ======= =========  =========  =======  ========= 
Percent                                                                     
     of                                                                     
Revenue              14.0%    6.3%      3.6%       2.2%    -0.4%       1.8% 
                                                                            
                                                                            
        As                                                                     
  Reported                                   $  (11.00) $ (0.19) $  (11.19)
Diluted EPS:                                                                    
   
        As                                                                     
Normalized                                   $    1.17  $ (0.19) $    0.98 
                                                                            
                                                                            
                                                                            
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table        
 "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."      
                                                                            
Normalizing adjustments are transactions or adjustments not related to      
 ongoing operations and consist of transaction costs associated with the    
 Company's sale to Genesis Healthcare.                                      
                                                                            
Since normalizing adjustments are not measurements determined in accordance 
 with U.S. generally accepted accounting principles and are thus susceptible
 to varying calculations and interpretations, the information presented     
 herein may not be comparable to other similarly described information of   
 other companies.                                                           

  
Contact:  
Investor Inquiries 
(505) 468-2341 
Media Inquiries 
(505) 468-4582 
 
 
Press spacebar to pause and continue. Press esc to stop.